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Researchers Find Problems With Rules of Bitcoin

Posted by ryuzaki0 on from the ruining-everything-with-math dept.

holy_calamity (872269) writes "Using game theory to analyze the rules of cryptocurrency Bitcoin suggests some changes are needed to make the currency sustainable in the long term, reports MIT Technology Review. Studies from Princeton and Cornell found that current rules governing the mining of bitcoins leave room for cheats or encourage behavior that could destabilize the currency. Such changes could be difficult to implement, given the fact Bitcoin — by design — lacks any central authority." The main problem discovered is that transaction fees do not provide enough incentive to continue operating as "miner" after there are no more bitcoins left to be mined.

34 of 301 comments (clear)

  1. That main issue is actually the solution. by Kremmy · · Score: 4, Interesting

    After all of the bitcoins are mined, there is no longer an incentive to treat it in this goldrush-like manner. The only people who will have reason to run a miner are the people who use bitcoins as a currency, to be a node in their decentralized economy. Most of the problems people describe seem to be directly related to its use as a pump and dump, actually. I must wonder what's going to happen once we reach that point.

    1. Re:That main issue is actually the solution. by thegarbz · · Score: 2

      The problem is what is the economic incentive? Do you want to use a currency where there is a real cost to using the currency? One of the premises of bitcoin was that we would no longer have to pay the middle man in a transaction, however now we need to pay the electricity company just to be involved in the process?

      This kind of removes the incentive to mine. In the analogy of a real mine it's like you're operating the mine in your backyard despite making a loss on doing so all so you can keep using the dollar. You wouldn't do it. Unless the mining process can break even or at least remain cheaper than paying interest or transaction fees at financial institutions then there's no point in being involved.

    2. Re:That main issue is actually the solution. by iluvcapra · · Score: 3, Interesting

      The problem with transaction fees is there's no way to properly market them-- theoretically the higher a transaction fee you pay will give you a higher quality of service, but in practice the terms under which your transaction is processed are completely voluntary. It might happen, it might not, and it's definitely in the interests of large mining guilds to run up the price, and the large guilds are very effective at locking out upstarts. A cartel of two of them would easily control a majority of the blocks that get signed onto the chain, and thus set the price of transaction processing.

      --
      Don't blame me, I voted for Baltar.
    3. Re:That main issue is actually the solution. by jefe7777 · · Score: 2

      "...more than 1 coin this year without sacrificing much space or melting your face off."

      Melting your face off is half the fun!

    4. Re:That main issue is actually the solution. by Anubis+IV · · Score: 2

      After all of the bitcoins are mined, there is no longer an incentive to treat it in this goldrush-like manner.

      That's the problem, actually. The gold rush provided a massive incentive for people to mine bitcoins, thus decentralizing everything, which is an important function of the economy, NOT because it mints new currency, but rather for its lesser-known purpose: to provide decentralized synchronization of blockchains and verification of the transactions made against them. This is a system that is inherently built on distrust, so ensuring that the synchronization and verification can occur in as decentralized a fashion as possible is of the utmost importance, and that's what mining served to do.

      Without the decentralized mining that naturally results from having it incentivized, synchronization and verification become more and more centralized. The whole system could potentially collapse if those functions are only being served by a handful of groups (e.g. "51%" attacks, such as verifying a false transaction by controlling the majority of miners). Moreover, if the miners aren't being rewarded with newly-minted currency, they'll need to be compensated for the upkeep costs of running mining machines in some other way.

      Essentially, bitcoin mining can't go away, so they need to find some other way to incentivize it so that the economy can stay afloat. As people are beginning to realize, the way to do that is through transaction fees and other such costs that are more typical of everyday banks. And various groups are already promising to not collude in order to accomplish a 51% attack, since that threat is already a very real one, but it's still rather worrying that they have to make such assurances.

  2. overblown by adam3us · · Score: 2

    The selfish mining paper makes sense in mathematically simplified game theory model but does not take into account real-world issues of latency. Anyway simple work-arounds exist eg for pooled miners, the winning miner can broadcast their winning solution to random nodes in the network, which prevents selfish mining (selfish mining depends on keeping the transaction secret temporarily delaying broadcast). Hosted mining is a problem, but people should stop overpaying for hosting mining contracts, and demand to control their own vote. The long-run economic question of fees crossing over with reward is WAY to early to declare defeat. We have large amounts of bitcoin reward for decades, bitcoin can be scaled to handle more transactions, and what do we know now about the bitcoin transaction fees & economic picture 20 years out).

  3. Did they actually look at the bitcoin rules? by ras · · Score: 5, Informative

    Firstly, there already is a "tax" of the sort they say is needed. Currently the bitcoin relays don't accept transactions containing a tip of less than 0.6cents per kilobyte.

    Secondly, there is nothing to force a miner to pick up a transaction, now. Right now, if a transaction doesn't contain a fee there is no incentive for the miner to include it in the block they are working on. Regardless of whether the miner includes transactions or not, they still get the mining reward.

    Transaction fees are like an auction. The customer puts in a bid at the lowest price he thinks the miners will accept, each miner decides whether that fee makes it worth his while to include the block. If the customer wants the transaction processed quickly he will put a comparatively high fee on it so every miner will be interested. If not, they put a low fee on it.

    This is called a market. It is how bitcoin is supposed to work.

    1. Re:Did they actually look at the bitcoin rules? by ras · · Score: 5, Informative

      except the problem of criminals leveraging other peoples resources. When you can utilise bots to farm for you you can effectively undercut other peoples market making any legitimate miner completely unprofitable.

      Said like a person who doesn't have a clue about the shear amount of resources being thrown at bitcoin mining.

      Currently, the bitcoin mining network is doing 6,549,663,840,000,000 SHA-256 hashes per second. Lets say you have a botnet of 1 million Haswell's. The fastest Intel CPU there is, a Xeon, and it can't do more than 20M hashes per second. So your 1 million Haswell botnet will manage to capture 0.3% of the bitcoin networks mining power.

      Yes, people have speculated in the past that bitcoin might be susceptible to botnets. Even if was true the vulnerability window has well and truly closed.

    2. Re:Did they actually look at the bitcoin rules? by ras · · Score: 3, Informative

      and you really think all that effort in mining is going to be maintained once the coin pool is exhausted and they are only competing for transaction fees?

      Just about all mining is done using ASIC now, and ASIC's are in an unenviable position. Unlike CPU's and GPU's or even FPGA's, they are utterly useless outside of bitcoin. So they will remain deployed until they cost more in power to run than they get in mining fees. This means the current mining power isn't going away any time soon.

      Botnet's can earn a return from a variety of sources, not just mining. So the question becomes "is it worth competing against the ASIC's"? In terms of power cost a top end Intel CPU's is roughly 100,000 worse than an ASIC. So even if some miners drop out Botnet's are unlikely to win more than a minor percentage. If the rewards of mining have dropped so much that ASIC's are dropping out, then it's a minor percentage of a small number. Add to that mining's soaking up 100% of CPU time makes an infection by the bot stand out, which decreases the half life of your botnet ... and yeah, I expect it will continue even when there are only transaction fees.

      Then there is the whole other question of "does it matter?" If a botnet does take over the mining pool, there is the little issue that bitcoin is intrinsically worth nothing. It's not like they have taken over a pot of gold. Bitcoin is only worth something if people trust it. So if they don't undermine it, they have something that will pay out forever. If they do undermine it, they have got control of 2^51 bits that no one in the right mind would buy and their source of transaction fees has dried up.

      It's weird actually. Claiming bitcoin can never succeed because it is worth nothing has to be one of the more popular meme's. The reality is being worth nothing is one of bitcoin's core defences. So far all currencies that have been based on something tangible (like e-Gold) have lacked that defence, and have failed.

    3. Re:Did they actually look at the bitcoin rules? by squiggleslash · · Score: 2

      The policies that were put in place to "recover" from the Great Recession were ad-hoc, and mostly centered around austerity, having much in common with Bitcoin's "price of everything, value of nothing" mentality. Only the monetary easing appears to have had any positive effects, but given it can't be targeted, it ended up disproportionately helping those who already had money and weren't actually having problems.

      In the meantime, people using Keynesian models were very successful in predicting how all these anti-Keynesian policies would pan out. That's not the same thing, of course, as saying the models would definitely have worked if, for example, there actually had been a net stimulus from our governments, but it certainly did predict what, for example, cutting 750 thousand jobs from American governments (local/state/Fed) payrolls would do.

      --
      You are not alone. This is not normal. None of this is normal.
  4. No big surprise there by retep · · Score: 5, Informative

    Ignoring game theory, it's easy to see how the model of mining being only paid by transaction fees doesn't make sense. After all, mining security is something that benefits all holders of Bitcoin, regardless of whether or not they perform transactions, so surely all Bitcoin holders should be contributing to that security.

    How do you do that? Make everyone pay equally. Currently that is how Bitcoin works due to the inflation subsidy. (about ~10% per year right now, leading to a per transaction cost of about $50) Just keeping that subsidy indefinitely at some sane level, say 1%, is perfectly reasonable. There's other options too, but fundamentally people like a free lunch.

    -Peter Todd, Bitcoin developer

  5. Cheats? by fustakrakich · · Score: 2

    You can't win unless you cheat. That is what the system in general rewards. Liars win elections, thieves win on Wall Street, bullies become sheriff. Cheats and bullies are top dogs in today's society. They are the gangsters who write the rules. Bitcoin is just another chapter. If there was no way to cheat, it would never have gotten this far.

    --
    “He’s not deformed, he’s just drunk!”
  6. Transaction Fees Change by Bob9113 · · Score: 4, Insightful

    Such changes could be difficult to implement, given the fact Bitcoin - by design - lacks any central authority." The main problem discovered is that transaction fees do not provide enough incentive to continue operating as "miner" after there are no more bitcoins left to be mined.

    I'm not sure that is an accurate reflection of the research, but if it is, it is not very good research. Transaction fees can change, and have changed. The minimum transaction fee changed from 0.0005 BTC to 0.0001 BTC during the runup to $1100, to keep transaction fees low enough for small transactions. There is a central organization, The Bitcoin Foundation, whose authority is explicitly derived from consent of the governed; the miners and users choose to update their software to match recommendations by The Bitcoin Foundation.

    If that summary is an accurate reflection of the research, it sounds like they don't really know much about how Bitcoin works. I mean, I know that much, and I've only spent a few hours reading about it.

    --
    Stop-Prism.org: Opt Out of Surveillance
    1. Re:Transaction Fees Change by Anonymous Coward · · Score: 3, Insightful

      >>The minimum transaction fee changed from 0.0005 BTC to 0.0001 BTC during the runup to $1100

      >Which is exactly the problem they are referring to. The fee dropped to the point of being not worth it.

      Er, what? The fee went from 0.0005 BTC to 0.0001 BTC because the VALUE of the BTC went UP.

      Here is a hint:

        0.0005 * $5 0.0001 * $1100.

      Such arrogance.

    2. Re:Transaction Fees Change by compro01 · · Score: 3, Informative

      The minimum fee set by default on the client the Bitcoin Foundation maintains (Now called "Bitcoin-core") was changed.

      Any other clients or anyone who feels like doing their own compiling can set the minimum fee to anything they like, including 0, but there's no guarantee their transaction will ever get included in a block if they set it very small.

      --
      upon the advice of my lawyer, i have no sig at this time
    3. Re:Transaction Fees Change by mysidia · · Score: 2

      Er, what? The fee went from 0.0005 BTC to 0.0001 BTC because the VALUE of the BTC went UP.

      No..... someone was apparently allowed to hastily make changes to decrease the minimum transaction fee in the client, because of some perceived increase in value on 3rd party exchanges that ultimately ended up being insolvent.

      Since the price has gone back down, and BTC is now perceived to be worth even less than half as much on current exchanges as during that temporary runup ---- how come the minimum transaction fee wasn't restored to its original place, huh?

  7. Bullshit by Laxori666 · · Score: 3, Insightful

    The difficulty of mining scales with the amount of miners. If the amount of miners drops, the difficulty will drop, such that you still get a block every ten minutes or so. Then the only danger is that it is easier to mount a 51% attack, since there's less total mining power. Everyone who transacts in bitcoins will have an incentive to keep the difficulty high enough such that this is unfeasible. Plus, all the transaction fees are optional - you can put out a zero-fee transaction, or a 5 BTC-fee transaction, if you like. If the recommended fees that Bitcoin Core suggests are not sufficient then everybody can just offer more fees.

    1. Re:Bullshit by Laxori666 · · Score: 2
      It's like you didn't even read what I wrote at all!

      Really, what is the difficulty of mining when all coins are mined?

      "The difficulty is adjusted every 2016 blocks based on the time it took to find the previous 2016 blocks." So if it takes 14 days (2016 * 10 minutes) to mine 2016 blocks, the difficulty is exactly the same. If it takes more than 14 days, the difficulty is lowered. If it takes less than 14 days, the difficulty is raised. The difficulty has nothing to do with how many new coins are being generated.

      Thus, if there are fewer miners, it will take longer to mine the blocks at the current difficulty, so when the next 2016 blocks have been mined, the difficulty will decrease.

      Also note that as the difficulty decreases, it becomes cheaper and cheaper to mine. So the difficulty will adjust to whatever it has to be so it's economically feasible based on the amount of fees gotten from the transaction volume.

    2. Re:Bullshit by Laxori666 · · Score: 2

      You might like to take a look at blockchain.info and note that just about every single transaction that's being posted right now includes a (non-mandatory) fee. It looks like your entire argument is founded upon a fallacy!

    3. Re:Bullshit by Laxori666 · · Score: 2

      This was evident to those of us 3 years ago, who casually downloaded the bitcoin client, left it run for a week or so, and saw not one coin in return. We (by which of course I mean "I") subsequently lost interest and uninstalled the client.

      Yep, bitcoin has been doing really poorly over the past 3 years.

    4. Re:Bullshit by Laxori666 · · Score: 3, Informative

      They're saying that the fee wont be enough to keep people in. Really, but bother to read their counter argument before you spout off about it.

      I RTFA. I countered this point in each of my replies. Here it is again. I'll even bold the important parts:

      As miners pull out, it will get easier to mine blocks. There will never be a shortage of computation power to run the network, because if half the miners pull out, it'll get twice as easy to mine blocks. If 75% of the miners pull out, it'll be 4x easier to mine blocks. If 90% of the miners pull out, it'll become 10x easier to mine blocks.

      Get it? Whatever the number of miners, transactions will continue to be verified at exactly the same rate. Look at the hashrate chart. The network was chugging along just fine in July when there were < 1,000 terahashes/second. Now there are over 40,000 terahashes/second. So if 97.5% of the miners drop out, the network will run just as well as it did in July, that is, perfectly fine.

      So when you reply, tell me again why it is a problem if some miners decide to pull out? Please don't just repeat once again that the article says that the fees will be too low and thus the miners will pull out. I get that that's what the article says. Why is this an issue, given the above?

    5. Re:Bullshit by Eskarel · · Score: 2

      Except there is a hard cap on the number of Bitcoins, by design. At that point, there will be no more coins to mine, period, at any difficulty.

    6. Re:Bullshit by Anonymous Coward · · Score: 2, Insightful

      Except there is a hard cap on the number of Bitcoins, by design. At that point, there will be no more coins to mine, period, at any difficulty.

      You are confusing blocks with bitcoins. When the cap on the number of bitcoins is reached, you can still mine blocks, but the incentive for doing so is the transaction fees instead of the new bitcoins created by the new blocks.

  8. Crypto's Behave More Like Securities Than Currency by teambpsi · · Score: 3, Insightful

    Bitcoin for all its technical sophistication is more of a threat to "stock exchanges" or "equity allocation" than it ever will be to "currencies"

    It is not suitable to a "drive-thru" transactions due to the number of "confirms" required to have veracity in the exchange.

    However, it is VERY WELL SUITED to the exchange of equity -- and is, given the current settlement times, much more of a threat to public ledgers like TORRENS (property exchange logs) -- or stock/ownership exchanges.

    --

    Old age and treachery almost always overcome youth and skill.
  9. 2140 by Salsaman · · Score: 2

    Well, fortunately we won't have to worry about that until 2140. By which time I am sure transaction fees will be more than enough to compensate.

  10. Way back when ... by Taco+Cowboy · · Score: 5, Interesting

    Back in the 1920's when that great depression struck, many banks folded, and people who had money in banks ended up with nothing.

    No matter for what reason the banks folded depositors were the ones left holding the empty bag.

    Kinda like what is happening in the various Bitcoin exchanges. No matter if it's stupidity, lack of security, or malice, it's the depositors (whoever parked their Bitcoins in that exchange) ended up losing it all.

    Well ... back to the 1920's.

    When the banks folded, did people abandon the greenbacks ? Yes or no ?

    Same situation here ... The fact that exchanges vanishing into thin air doesn't render Bitcoins invalid.

    True, some of the "rules" are flawed ( I kinda have a sense something is amissed ever since Bitcoin came out, back in 2009, but I just couldn't pin-point what is wrong with it, but thanks to those scientists at least now I know, but I digress ... ) and they may need to be changed ( ... as been pointed out, the implementation of the necessary rule change may turn out to be very hard ... ) but all in all, the system of Bitcoin, at least, for the concept of it, is still as valid as ever.

    Many people are digging at Bitcoin, trying their best to make it sounds as if it's something uncertain, something ephemeral, something "flash in the pan" but if we are to look at the alternative to Bitcoin, ie, the FIAT MONEY SYSTEM, it too has been damaged beyond repair --- as so much money was created out of thin air, which means, the value of the fiat money is no longer valid.

    --
    Muchas Gracias, Señor Edward Snowden !
    1. Re:Way back when ... by Anna+Merikin · · Score: 3, Interesting

      Geeks who run with anarchists will be the first the anarchists turn on when "authorities" are gone. The greenback has an important phrase printed thereon "For all debts public and private" (within the USA.) Bitcoin has no such mandate.

      And,. yes, people did abandon the greenback in the sense the greenback worth .05 oz. of gold was replaced by one worth .028 oz. in 1934.

      Two hundred-thirty-some years after independence, dollars are still circulating because people believe in them. Still, there are those old-fashioned enough to disbelieve in "new" currencies and hoard an even more ancient and worthless material -- gold. And there are nearly three billion people who live in nations where gold is more desired than fiat currencies.

      The world does not move as fast as true-believing miners would have us believe. Those who drink the crypto-curremcy kool-aid are clearly operating out of some fervor based entirely on faith, not logic.

      That's quite OK, as economics is simply applied mass psychology, more or less, and not a hard science. So one can excuse geeks' lack of understanding of the subject. But to ignore the impolsion of this particular crypto currency at this time is absurd.

  11. Bitcoin has to be BETTER than fiat currency by Camael · · Score: 2

    And that ABSOLUTELY doesn't happend with $$$$???
    Like not even remotely as much as it happens to $$$?
    So far technically bitcoin has not been hacked or anything. All of problems happened with no specific relation of Bitcoin mechanism. Guess what, IRL currency get's manipulated much worse.

    All this, unfortunately, is irrelevant. Bitcoin in itself has no inherent value. Its only value lies in what its users, and ultimately what the public perceives it to be worth. If I agree to accept 1 bitcoin from you in payment for goods worth USD$1, to both of us it is worth USD$1. If I refuse to accept any bitcoins in payment, to me it is worth nothing.

    This brings me to the second point- all this widely reported scandals involving hacks, scams and failed exchanges is very, very bad for bitcoin. It does not matter where the failure lies- the general public will simply perceive bitcoin to be unsafe and hence refuse to accept or use bitcoins. Hence to the general public, bitcoin is worth nothing.

    To be widely adopted, bitcoin has to prove that it is better than fiat currency and so far it is doing a terrible job. The failure of the ex-largest exchange, Mt. Gox is the cherry on top.

  12. Re: wooo look at that strawman BURNNNNN by allcoolnameswheretak · · Score: 2

    Where did the money go in the Wall Street crash?

    Money on stock exchanges is never lost. For every seller there is always a buyer. For every investment there is a payout. It's like the conservation of energy. Money changes hands, but it can not simply vanish, like BitCoins apparently can, unless you actively destroy cash currency.

  13. Re:Oh my by jythie · · Score: 2

    Well, if BTC wants to be used as a general or replacement currency, yeah, problems on that time scale matter a great deal.

  14. Re: wooo look at that strawman BURNNNNN by r.freeman · · Score: 2

    And yet NONE of this affected me! Wonderfull.

    When this happesn with banks operating in fiat especially in USD, then each time every citizen is hurt when tax money "rescues" the bank/banksters who are "too big to fail".

    And when USD is printed out of thin air, every user and every holder of USD in the World looses some of USD.

    E.g. at some point 1 USD was worth for example 1/100,000,000,000 of entire pool of USDs, after decade it changes to say 1/200,000,000,000 of entire pool of USDs, so if totall markets using USD did not grew x2 to compensate then you lose some buying-power as USD holder/user.

    USD buying power seemed to fall by x10 (1000%) over this century or so, so they over-print it.

    In the same time, 1 bitcoin was, and ALWAYS WILL BE 1/21,000,000 of entire bitcoins pool. As a result, during last 2 years bitcoin RISEN in price x100, making mny ordinary people who are geeks or had a bit of fath into millionares.
    While at some point this will slow down, at least you are guaranteed to always hold given fraction of totall BTC supply.
    Same as with gold.
    So you will not be silently stolen from by eithre printing out of think air because some man said so changing previous arragement (giving up gold standard despite initiall promises)
    nor by bailouts to save banksters (unless YOU made yourself decission to give money to some crooks or irresponsible merchants/banks but that is your own choise which you have a fair chance to avoid, e.g. store most of wealth on own wallet).
    This is what makes bitcoin a very fair system compared to the alternatives, for me.
    Plus it's really good, fast and cheap method to send value to anywhere in the Internet/World :)

  15. Re:I must not be getting this.. by squiggleslash · · Score: 2

    MIners in Bitcoinworld have two roles. One is to "dig for Bitcoins", that is, solve cryptographic problems that result in the creation of new bitcoins. As you say, this role has, effectively, an expiration date (which means Bitcoin is unsustainable, FWIW, if you're vaguely left wing read Keynes for an explanation. If you're right wing, Milton Friedman's over there and he'll explain it to you too. This isn't rocket science. But that's another story.)

    The other role is to facilitate transactions. Bitcoin transactions are performed by maintaining the "blockchain", the giant ledger (I'm not making this up) that records every single Bitcoin transaction ever. (Again, I'm not making this up.) Obviously if any old person could add a line to the ledger it would be fairly insecure, so instead someone who wants to give money to someone else sends a message to the miners, signed with their wallet's key, that says "I'm transferring Bitcoin $X from my wallet to $this_person's", and each miner verifies, using the blockchain, that they have Bitcoin $X, and if so adds the line to the blockchain transferring the Bitcoin, and broadcasts a message to all the other miners saying what they've done so everyone else ends up with the same blockchain.

    And once enough miners have confirmed they've added the transaction, the two parties with the wallets involved say "Yay, we transferred the monies" and they're happy. At the same time, the miners involved, using some algorithm I'm currently unfamiliar with so will not bother to explain in detail but the point is it exists, take a share of the transaction they facilitated as a "transaction fee".

    It's this transaction fee that's the second method of making money from mining and it's why it's expected that mining will continue after all the Bitcoins are mined, although this brings us to the story, which argues they won't because people won't be willing to pay transaction fees that are economic enough to make it worthwhile.

    --
    You are not alone. This is not normal. None of this is normal.
  16. If it looks like a duck and quacks like a duck... by sjbe · · Score: 2

    We all "just" need to take your word for it, or did you have anything to substantiate this claim?

    Seriously, it *might* be that bitcoin is legit but frankly it is absurdly easy to paint the picture that bitcoin is a Pump-and-Dump scheme. If I were to describe a hypothetical pump and dump scheme using a hypothetical digital currency, it would sound an awful lot like bitcoin. Doesn't necessarily mean that bitcoin is such a scheme but anyone who uses it without strongly considering the possibility is a fool.

    Bitcoin is just a mechanism to transfer tokens ("coins") securely from one wallet to another, and gradually add tokens to the available pool by letting anyone who wants to mine them.

    No it is NOT just what you describe any more than dollars are just printed pieces of paper we can hand to one another to buy things. It is a type of currency and as a result it is much more than just a mechanism of transfer. Bitcoin is the entire system it creates including the exchanges, the software, the transaction infrastructure, the rules and the rest. The ability to transfer bitcoins between digital wallets is pretty much useless without the rest of it so saying it is just a transfer mechanism really isn't correct.

    What's curious about bitcoin is that functionally it's pretty much a digital money order. It seems to have some geek appeal but there isn't anything functionally novel about what it does. I think it is an intellectual curiosity that will be studied closely by economic researchers but practically speaking I don't really see much point in it. It carries a huge amount of risk and externalized cost for something that I can already do with a lot less bother.

  17. Re: wooo look at that strawman BURNNNNN by allcoolnameswheretak · · Score: 3, Insightful

    If you invest 100$ into one share, whoever sold you that share now has your 100$.
    If later you need cash and want so sell your share, but its price is only at 10$, it means that there are buyers willing to pay only 10$ for your share.

    Subjectively you could argue that you "lost" 90$. But the person who sold you the share for 100$ could now buy it back from you for 10$ and he would have "won" 90$. In total, the balance of the transactions is 110$. No money has vanished. The value of the commodity has changed, and there are winners and losers of the exchange. One mans loss is the other mans win.